MEDIA & MARKETING:THE ISSUE of credit insurance for media owners has been brought into sharp focus with the recent appointment of a receiver to McConnells Advertising.
When an advertising agency books an advertisement with a media owner, the question is who is responsible for paying the media owner if that ad agency goes out of business. Is it the agency who booked the ad or the client whose advert was published or broadcast by the media owner?
Since McConnells entered receivership, media owners are being referred to the receiver by the advertisers on whose behalf McConnells booked ads.
The country’s national newspapers are believed to be owed €1.5 million between them. To prevent situations like this arising in the future, the National Newspapers of Ireland has met the Institute of Advertising Practitioners in Ireland to explore the possibly of putting a financial compensation system in place.
Frank Cullen, spokesman for the National Newspapers of Ireland, the representative body for Ireland’s daily and Sunday newspapers, says: “The media owner recognises the ad agency as someone who is facilitating their business. That’s why they pay a commission to ad agencies and extend credit.
“In recent years, there has been a concentration of media buying power with just a few agencies. That also raises questions. It means the potential hits for media owners are bigger. I believe that advertising agencies have an obligation to provide some form of comfort in relation to a financial guarantee scheme.”
Such compensation schemes exist in other countries. In France, the money an advertising agency receives from its client for booking a campaign is lodged to a separate media owner’s account. Sean McCrave, chief executive of the IAPI, questions whether such a bonding system would work in practice.
“One possible solution could be sequential liability as exists in the US,” he suggests. With sequential liability, an agency is liable for payment only if it has been paid by the advertiser. Until that happens, the advertiser is responsible for payment.
Magazines Ireland, the representative body for magazine publishers, put forward a proposal to IAPI that agencies include an insurance premium on their clients’ invoices. Media owners can seek to protect themselves with trade credit insurance, but it’s an expensive option which few media owners favour.
The Irish Timesdoes not have credit insurance. According to its marketing director, Paul Farrell: "The perceived downside is the cost of buying credit insurance relative to the risk. In principle it's a good idea, but there are lots of conditions attached."
Farrell also questions the relationship between the media owner, ad agency and advertiser. He says: “The big question is who owes the media owner the money for the ad if the agency goes out of business? Why should media owners pay ad agencies 15 per cent commission for ads they book when they no longer act on our behalf? They are acting as a broker now. If they were acting as agents in the true sense of the word, there would be a greater possibility of putting a bonding system in place.
"Our advertising success in 2010 has been in reaching clients directly. Going forward, The Irish Timeswill be engaging much more directly with clients. We will still be putting the commission through the agencies, but we will be telling clients directly what we have to offer," he added.
TV3 does not have credit insurance either. Its chief executive, David McRedmond, explains: “We have relatively few debtors and most of our business is through big media agencies. We monitor credit very carefully.
“Some lessons have to be learned from recent events. A lot of this comes down to the commercial position a media owner has to take to protect longer-term relationships rather than a legal position.”
Paul Cooke, managing director of the Starnewspaper, confirms that his newspaper has had credit insurance for the last six years. "Credit insurance does provide some certainty and we have made claims in the past. But I would not be certain how our claim for debts owed to us by McConnells will pan out. I am not complacent just because we have credit insurance."
siobhan@businessplus.ie
